Sunday, December 5, 2010


"Paper" gold and silver is widely traded today in three investment vehicles, the close-ended fund CEF (Central Fund of Canada), and the twin ETF's GLD - SPDR Gold Trust, and SLV iShares Silver Trust. Whole oceans of ink have been spilled detailing the good and not-so-good points of these funds. My goal here is to distill the salient points down to the fewest words possible to help make your due diligence task somewhat less...well...tasking.

To Audit or Not to Audit - CEF's bullion reserves are audited by an independent firm, Ernst & Young LLP., twice per year. GLD and SLV on the other hand do not permit any such transparency. Echoing the former sentiments of disgraced trader Bernie Madoff, investors are just supposed to trust the "word" of the funds that the bullion is there.

Insurance - CEF's gold and silver is fully insured by Lloyd's of London. GLD and SLV fully acknowledge that their "reserves" are not insured against any happenstance that may prevent them from repaying their investors in gold or silver. They even reserve the right to compensate investors in US paper dollars if necessary.

Counter Party Risk - CEF reserves are fully allocated and segregated with the name of each investor attached to particular gold and silver bullion. GLD and SLV's "alleged" bullion is unallocated and unreserved. There's no telling just how many competitors you'd have to fight off to get any of your precious metals with these funds.

Conflicts of Interest - CEF has been in the close-ended fund business backed by gold and silver since 1961. Their directors are well respected in the precious metals market. The custodians of GLD and SLV are HSBC and JP Morgan respectively.

Where do I start with these two banks (above)? Well, let's just say if there was a Who's Who publication of precious metal naked shorters and market manipulators these firms would be prominently featured. How can you trust a custodian of your long interest metal fund who is accused of making fortunes by manipulating the metal prices downward? Anyone thinking of the fox guarding the chicken coop metaphor here?

Premiums Above Metal Price - We finally reach a point that is in marginal favor of GLD and SLV and to the deficit of CEF. CEF unlike it's ETF step brothers often sells at a premium to the price of gold and silver. If you're a day trader that means you can buy and sell shares of the ETF's more cheaply than you can with CEF. However, for my part, I'm in a long term holding strategy so a small premium is the least of my concerns. Frankly, I see the premium as just an outward manifestation of the inherent preference by sensible investors for a fund that has actual, real gold and silver backing it up rather than glittering ethereal promises of metals.

As you might suspect, I own CEF and wouldn't touch GLD and SLV with your...well...hand!

Time is running out fast! Hyperinflation seems unavoidable as fiat paper money is being printed as fast as the US presses can run. To protect your wealth and your family, buy gold and silver now from these top companies (below):




  1. Thank you for the informative article. Due to the event of Feb. 29th, I have dumped GLD and SLV, never to return. Going to add to my CEF as you wisely suggested. Ciau.

  2. I'm very glad I was able to help!